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Third Quarter FY2016Earnings Conference Call05 February 2016
Speakers: Mr. Rajiv Pancholy, Managing Director & CEO, OnMobile Mr. Sanjay Bhambri, Chief Commercial Officer, OnMobileMr. Praveen Kumar, Chief Financial Officer, OnMobile
Q3FY 2016 Investors Conference Call
February 5, 2016
Page 2 of 17
Moderator: Good afternoon, ladies and gentlemen. I am Harpreet Kapoor, the
moderator of this call. Thank you for standing by, and welcome to
Q3FY 2016 Investors Conference Call for OnMobile Global Limited.
For the duration of presentation, all participants’ lines will be in listen-
only mode. We will have a Q&A session after the presentation. Joining
us today on the call are Mr. Rajiv Pancholy, Managing Director and
CEO; Mr. Sanjay Bhambri, Chief Commercial Officer; and Mr. Praveen
Kumar, Chief Financial Officer. Before we begin, I would like to
mention that some of the statements made in today’s call maybe
forward-looking in nature and may involve risks and uncertainties. For a
list of considerations, please refer to the earnings presentation.
OnMobile undertakes no obligation to publically revise any forward-
looking statements to reflect future, likely event or circumstances. Please
be advised, this conference is being recorded today. I would like now to
handover the conference to Mr. Rajiv Pancholy. Thank you and over to
you, sir.
Rajiv: Thank you, Harpreet, and good afternoon, ladies and gentlemen.
Welcome to our third-quarter conference call. With me today, Praveen
Kumar, Chief Financial Officer; and Sanjay Bhambri, Chief Commercial
Officer. There are quite a few items to cover today. So, what I have
decided to do is to separate them into different categories and offer you
my perspective.
First thing and obviously, let me start with the financial results for the
third quarter. The situation in which we are operating today in many of
the geographies is indeed very challenging. All you have to do is open
the newspapers on a daily basis and see the utter unpredictability of
what’s happening in markets of the world over. It’s nothing to do with
OnMobile, it’s just that that is the reality in which we operate. Legacy
business is operating in various geographies where the economic outlook
is anything but stable. Currency fluctuations are the norm and consumer
behavior is indeed very volatile. For this reason we are seeing more than
the usual variability in performance in almost all the geographies in
which OnMobile operates. I’m proud to say that despite of this we have
achieved revenue stability, have grown our EBITDA margin to 19.4%
on a quarter-over-quarter basis and are tracking fully to our projections
of our traditional business.
I also want to confirm that this current quarter, which ends in March
31st, is the last quarter in which we will actually have a net loss after
tax. Amongst other factors, this will be figured by a sharp reduction in a
depreciation line by approximately 15% on a year-over-year basis.
This is a major milestone for OnMobile and we are certainly looking
forward to this being a stepping to a much better future in financial
terms. My second point is about emphasis on continually evaluating our
business and taking the steps to maintain peak efficiency. This is
something we do on a routine basis and it is almost now the second
nature of the organization to make sure that we’re always operating with
Q3FY 2016 Investors Conference Call
February 5, 2016
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the best and the most meaningful resources and assets, and also being
very quick to make certain calls which are necessary to maintain this
efficiency.
We have recently announced the full divestiture of our Telisma speech
business unit that was acquired some years ago for the purpose of
getting speech recommendation technology. As you might appreciate,
our speech recommendation technology was historically the only way in
which users of our services could interact to our network systems given
that they were basically using the older generation of feature phones.
Today as a set of customer base moves towards users’ adoption of smart
phones, this technology is no longer critical to our future offerings. This
divestiture while not significant in terms of the financial parameters does
help to increase the focus within the company and also reduces our
footprint in a very expensive geography.
My third point is about customer engagement and forward momentum of
the company. We continue to have positive customer engagements.
Again, as you may have noticed we simply have renewed our
relationship with BSNL for the further terms of three years with an
option to renew for a further one year. Most significantly we have been
selected by the Reliance Communications to be their partner to offer our
RBT service on a national basis. The work to deploy our systems in this
vast network is now in full swing and we hope to see the positive impact
in other recent wins in approximately two quarters from now.
My fourth point is about the next chapter in the history of OnMobile.
And I’m pleased to report that we have indeed made some significant
progress in the recent few months towards some of the essential
ingredients we need to launch these new offerings. One of these is the
work that has been going on to develop our consumer identity which we
have been working with one of the leading firms on a worldwide basis
called Brand Union based on the United States to help us develop. This
is now at a point where this visual identity is pretty close to being ready.
And not only that, but it will give us what we believe are those
memorable iconic moments that our users would see in our new apps.
Having quantified the needs for the launch of new offerings in select
geographies in 2016, and given that we continue to generate cash quarter
after quarter, we have initiated another stock buy-back process. We
believe this is the most equitable way of using a cash reserve while
maintaining sufficient amounts for future use and for introducing the
new offerings. It also fundamentally underscores our confidence in the
future of our company.
With these brief comments, I’m going to hand it over to Praveen for a
much more detailed analysis of the financial performance following
which we will basically entertain a finite number of questions. So, over
to you, Praveen.
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February 5, 2016
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Praveen: Thank you, Rajiv. Good afternoon, everyone, I’m summarizing the
financial results for you today for the quarter three, first on top line our
revenue has remained stable as compared to the last quarter at around
207 crores while the mix between the geographies has slightly changed.
LatAm is down because of revenue share change that we had discussed
during quarter one, and there is unstable economic outlook and currency
fluctuations as we all know.
Europe and India have been stable and we have had growth coming in
from Asia which has offset the degrowth in LatAm. And because of the
resulting change in the mix; COGS is marginally higher by around 2%
and hence the gross margin is marginally lower by 1.4%. Manpower cost
has dropped from 55 crores to 52.5 crores while the OpEx has remained
flat at around 35 crores, which has resulted in EBITDA improving by
around 2% at 19.4% margin as compared to 19% margin in the previous
quarter. Depreciation remains almost flat and hence the growth flows
into the operating margin as well which was at 1.3% in Quarter 3.
Other income is lower because of lower FX gains as compared to Q2.
However, this time we have the impact of devaluation of Argentine
Peso, referred to ARS, which has been disclosed as an exceptional item
in our results. This was due sometime and it has happened in this
quarter. The new Argentinean government led by Mauricio Macri, you
may have heard of, so in their effort to boost their economy and attract
investments, they announced the move to end their central bank support
for Peso and currency control that limited their ability to buy dollars. It
was a very strictly controlled currency. And this happened in December
2015 consequent to which the ARS weakened 27% to 13.4 Pesos to a
dollar on a decision day from 9.4 Pesos to a dollar a quarter back I think
around 30th September.
INR was at 5.11 to a Peso on 31st December as against 7.04 quarter
back. And this line item of 6.5 crores has impacted the profit before and
after tax during the quarter for us.
Coming to the balance sheet we have a gross cash of about 278 crores
and net cash at 251.5 crores. Cash in marginally down because of
working capital changes during the quarter, which is more temporary in
nature. Typically this happens in quarter 3 because of the Christmas
holidays and all that. We have had some collections moved from Q3 to
Q4 but this should be back on the growth track in quarter 4. Our head
count was at 1087 at the end of Q3. And CapEx spend was around 7
crores, this time typically higher than the other two quarters because of
the new deal that we had announced and we have started deploying.
Now, with this we are happy to take any questions that you may have.
Moderator: Thank you so much, sir. With this, we will open the floor for a Q&A
interactive session. Participants, if you wish to ask a question, you may
please press “0” and “1” on your telephone keypad and wait for your
name to be announced. The first question of the day we have from Mr.
Prakash, independent investor. Your line is un-muted.
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February 5, 2016
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Prakash: Good afternoon, good evening, gentlemen. Thank you so much for
taking my question. I just have a few questions around the legacy
business on the volatility side, if you could just guide us. What
percentage of your turnover do you believe is in currencies which could
be subject to high volatility, if you look at the historic trends?
Praveen: Prakash as of now, today we believe LatAm is one region that is prone
to the currency fluctuations. And there are one or two high risk countries
that we have.
Prakash: So if put the turnover of all that together, approximately how much
would that be?
Praveen: It would be roughly about 30% of the overall turnover. This is not only
LatAm but it also includes Africa and all that. I’m right now excluding
Europe from that because Europe has somewhat recovered from the last
one year, a year back when we had that drop, a huge drop. But you know
again, it depends. Now, if we say Europe, again, it becomes volatile that
what percentage of revenue this will go up significantly, right?
Prakash: I completely understand. We’re just trying to get a guidance of if you
leave Europe out, the other high volatility countries that you deal in
approximately what percentage of the turnover; 30% is a good number,
fair enough. But I’m just trying to understand the depreciation
amortization change from Q1 2016-17, how much is the drop
approximately and what impact does it have on EPS?
Praveen: So, today we have a depreciation of roughly about 38 crores per quarter.
And this is going to come down by half; it’ll exactly come down by half.
So it’ll be somewhere around 18 crores per quarter.
Prakash: So, you’re going to be saving about 80 crores a year.
Praveen: Yeah, the decrease is about 80 crores in a year, and the entire thing will
flow into the EPS.
Praksah: Fair enough, thank you. Because either which way the taxation - you are
whatever withholding taxes there, you’re accounting for that as tax paid.
Praveen: Yeah, absolutely.
Prakash: Fair enough.
Praveen: The reduction in depreciation will not impact the tax in a significant
way.
Prakash: Absolutely, that’s the point I was trying to make. Fair enough. One
quick third question, Telisma the speaker, the recognition software that
you just sold, if you could just guide us on the cost of purchase and the
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February 5, 2016
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approximate sale value and the plus or minus on that, and perhaps some
indication of the impact on ongoing costs because that present a high
cost geography.
Praveen: So, Prakash, as you know, we acquired Telisma long time back. It was
more of a technology acquisition, and over the last few years it has
helped us get into multiple geographies a bit more faster and in easy
manner. We acquired this around at 70 crores way back in 2007, and
right now we have sold it off for a nominal amount. It is more to do with
not really the purchase consideration but the benefit it would give us in
terms of releasing the management bandwidth of managing this entity in
the high-cost location. And if you remember about two years back we
had made a provision, or one year back we had made a provision, for
impairment of this asset. We had made a provision of Rs.65 crores
which was already provided. So, right now whatever we have sold is
equivalent to the book value that we have.
Prakash: Fair enough, there is no further impact?
Praveen: No, not at all.
Prakash: And I just to understand in terms of the high cost geography, you will
then have a reduction of cost of some kind in the geography?
Praveen: Yes, that’s right.
Prakash: Can you give some guidance, is that quantifiable?
Praveen: Yeah, it will be relatively minor. So at the EBITDA level, we will have
probably about 100,000 savings every quarter, $100,000.
Prakash: Okay. It’s a relatively minor saving. Fair enough. Thank you for
answering my questions. All the very best for the future. I’m very
excited it hear about the new products developing, and looking forward
to seeing the impact to that in the numbers. Thank you so much.
Moderator: Thanks for your questions. Next we have Omang, individual investor,
your line is unmated.
Omang: Yeah, hi and thanks for taking my question. Just one question, I just
wanted some idea on the geographic figures that you're providing. So,
since like you have stopped providing a classification, my calculated
figures show that nine months revenue for develop markets has
increased from around 190-odd crores to 250-odd crores. Is this
calculation correct for developed markets?
Praveen: For developed markets?
Omang: Yeah.
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February 5, 2016
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Praveen: Yeah, I think that’ll be right.
Omang: So, that means that your developed markets are showing a strong
traction. And if so, then is it from the acceptance of your new products
or it’s a mainstay RBT, CVAS is it getting tractions in these developed
markets?
Praveen: Yeah, CVAS has got a good traction in the developed markets. There is
nothing right now from the new products that has come to our revenue
streams yet.
Omang: Okay. Do you see that hitting the top line in the next year?
Praveen: Yes, as we implement are new the products strategy as we have been
discussing, the revenues should significantly shift from the legacy
products to the new products for a period of, say, next three years.
Omang: Okay. Fine, thanks for your answers.
Moderator: Thank you for your question. Next we have Deepak Podar from Sitara
Capital. Your line is un-muted.
Deepak: Yeah. Thank you very much, sir, for the opportunity. Sir, my first
question is your new product is launch, like I just wanted to have some
understanding that the kind of launch we are looking at, is there any
other similar product that already exists in the market, or in that same
year have you done any kind of survey that what kind of customer base
would we be targeting over medium for this new product? Some sense
that would be helpful.
Rajiv: Let me give you a kind of a high-level view of all the activities that have
gone on which may probably answer some of the questions that you
have posed. We have, you know, when you look at the largest space
RBT that have given us some idea of where we are coming from in
terms of our history and legacy, it’s difficult to say that there’s nobody
else who has exactly the same thing or who doesn’t have. There are
many, many overlapping offerings out there, some small some big, some
from small players, some from dominant players. We believe having
said that that our new products will in fact focus on some spaces which
have historically not been taken. And to get to the conclusion there are
two different paths that we have taken, one is we have done very
extensive market research along with prototypes and mock ups in
principal markets, one of them being India, which has given us a very,
very good understanding of consumer behavior, their reaction to our
products, what they want, what they don’t want, the kind of business
model that they favor, the price plan, the price points and also the
demographics. And I think one of the key highlights is there is needed a
shift in demographics when we go with the new products. We are
looking maybe a different class of users than the historical RBT users.
So, yes, many different ways to basically fine tune our offerings. That’s
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February 5, 2016
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all, much of the work has already happened. Some of it is continuing by
the way. So, this will be reflected on a new brand, the brand positioning.
And all I can say, once again, is, it’s being intense, has been going on
over the last one year. And I think we are now coming to, I would say,
the last lap of this race.
Deepak: Okay. So, we are looking to launch it by June as what we had earlier
kind of indicated?
Rajiv: Yeah, but I don’t know what’s the precise date. It all depends on when
the contract gets signed, and they set a lot of variables, but the as a
general timeframe, yes.
Deepak: Okay. And any kind of customer base that you are looking to target over
the medium term, let’s say, the next two to three years kind of
timeframe?
Rajiv: You know, I think the best I can do is offer you repeat my comments,
which is that basically the target market and the target demographic that
we are going after is significantly developed.
Deepak: Significantly developed, okay. I understood. And what would be the
revenue model for this product, is it a subscription-based, monthly,
yearly, some sense on that?
Rajiv: It’ll be a mixture of all because we’re not talking of one specific
product, there are, you know, a blueprint basically envisages multiple
apps, and within those apps there are many different scenarios, there is
certainly a subscription-based scenario, there is also a per user scenario,
there is a premium scenario. So, there is no one single formula that
applies across all the apps.
Deepak: Okay. I understood on the new product. Now, I have a couple of
questions on your legacy business as well. Now, if I see last three-four
quarters, our revenue has been quite stagnant in a range of about close to
200-210 crores. And in FY 2014-15 and I think we sold Voxmobili in
2QFY15 quarter. But still our revenue this quarter is about 9% on a Y-o-
Y basis. So, what is kind of blocking growth for us because of which we
have not been able to scale up the revenue?
Rajiv: I think the legacy business as, I think Praveen has mentioned, there are
many factors at play. One is year over year the revenue share that we
have historically had with operators has gone down, which is the
principle set of things. So it is not that the consumption of the service
has come down but our revenue share contractually has gone down.
Overly on that currency fluctuations and negative impact on that. So the
same amount of offering what be record as revenues has also gone
down. So, this is the principal reason why and where in fact, I mean this
is contra-indicative because when we look at the amount of transactions
or the users and the number of places we do on a daily basis, they
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February 5, 2016
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continue to climb. If you look at the number of paid user base, they
continue to climb, and yet the recorded revenue continues to drop, and
henceforth the drop that I mentioned.
Deepak: Okay. So, also…
Rajiv: I could basically say that on one hand if you look at the KPI, the
business is growing and yet when it comes to reporting revenues you’ll
see basically the stagnancy.
Deepak: Okay. So, but then is there anything that strategy in place or anything we
are doing to increase the growth in our legacy business, any kind of
target that we had that we want to achieve 1000 crores of revenue in
next one to two years or something on those lines, anything we are
thinking?
Rajiv: No, I’m not going to give any guidance in terms of, you know, 1000 of
crores or any such thing. I think it’s very clear; we are focused right now
on a new launch. And I think when we get close to it you will see the
full parameters of that.
Deepak: Okay. I understood, sure, thank you very much. That’s it from my side.
Moderator: Thanks for your question. Next we have Pretesh from Lucky
Management, your line is unmated.
Pretesh: Yes, sir. Just couple of clarifications, I didn’t get it. The exceptional
item was on account of currency?
Praveen: Yes, that’s right.
Pratesh: And second the 100,000 quarter over quarter saving, that is expected on
account of?
Praveen: On account of the sale of the Telisma unit, disposal of the unit that we
just spoke yesterday and in the call earlier.
Pretesh: Okay. And I’ve been on your call for quite a few quarters, we are
waiting for you to give out some growth outlook, would you like to
share one now since post the implementation of the new product line?
Rajiv: I’ve mentioned this before. We will give it only once and as we are
basically on the threshold of the launch, I think prior to that would be
unwise.
Pretesh: Okay. And…
Rajiv: Please understand that behind the new launch there is also a significant
change in the business model that we actually use and explained that in
response to the previous question. And the change in business model is
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February 5, 2016
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rooted in changes to our contracts and relationships. And, you know,
while those negotiations are still going on and everything has not been
signed off, I hope you understand my hesitation in giving you guidance
because it will be seen as being very presumptuous by the people with
whom we are doing these negotiations.
Pretesh: But is it safe to assume that the growth for your company would start
beginning next year; the extent is not known, but the growth next year?
Praveen: Yes, it would start in the next financial year, but the impact, the growth
may not be very significant in the next financial year because a large
part of the year will go in terms of the deployment and learning the new
offering and implementing them in the market. But yeah, the year after
that is when you would see the real growth.
Rajiv: So, typically what happens in our business is that from the day we
actually decide to do something, and I sort of made this comment in my
opening remarks. It takes typically two quarters, first to basically just
deploy the systems and get them up in running to the point it start to
make a financial contribution. So, that is the typical lag between starting
something v/s seeing a full financial impact on the P&L.
Pretesh: Okay. Can you lastly just give out the key difference between the
existing business model and the new product given model, the key
differences, if it is possible?
Rajiv: I think again I’ll repeat what I said earlier, you know, the old model we
had was very rigid and well-defined model which was basically
predicated on a wide label offering to operators. And the key parameters
that would basically number one it was a 100% subscription service. I’m
taking about RBT at this point in time. And our set of relationship with
the operator was based on a revenue share agreement. Now, when you
actually talk on the consumers and the research we’ve done, when you
go beyond the traditional RBT service, the subscription-based model is
not necessarily the preferred model. What the consumer is saying is that
basically in certain cases like to have a pay per use model. In certain
cases they prefer premium model where certain basic features are
available for free and then people pay. So there’s a variety of new
models that are coming to play with the new offerings in addition to the
traditional subscription model.
Pretesh: Okay. But your relation or your core to the old and the new model would
be your relationship with the telecom companies.
Rajiv: You know, our service is actually based on connectivity with the
operator’s networks. So, that will remain fundamental. And I would say
for most of our product offering that is still underpinning aspect of our
offerings.
Pratesh: So, can they be called as ondeck apps?
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February 5, 2016
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Rajiv: No I don’t want to basically put labels on it. I think when a product is
released you would see basically what they are. It is pointless putting
labels on them.
Pretesh: Okay. And it will start with effect Quarter 1 next year, the monetization?
Rajiv: No, like I said, you know, once the deployments will start in 2016, and
we are very firm on that view, I think it’s just that if the question was
when it will actually start to have a significant impact on the financial
performance. And my answer is that two quarters after we do the
deployment, we will start to see the numbers change in a very significant
way.
Pretesh: Okay. Thank you very much and all the best, sir.
Rajiv: Thank you.
Moderator: Thank you for your question. Next we have Babu Lal Chaudry,
individual investor, your line is un-muted.
Babulal: Yeah, good afternoon everyone. Basically I am investor of OnMobile
Global from like four to five years. So, you guys are giving like constant
quarter results like form top line and bottom line perspective. It means
from like if you see from four to six quarter, you are cleaning and close
entities, all those things. But again constant revenue, there is no profit at
all, and cash is getting down. And again you guys have announced one
more buy back. So, we have a very bad history of like buy back offers
for this organization, if you see the EX CEOs and all those things. So,
what is the main reason behind the buy back, because if you see the
circular you have given to say the for that particular Q3 results, you have
not highlight this buy back option. But just before the result you have
seen, you will be buying back. So, is it the decision you have taken like
in a hurry, or was it well planned? If it is well planned, then what is the
thing which; if this is a new product which will give multiple revenues?
Are you confident on that?
Rajiv: Let me answer the question about the buy back. Ever since I’ve joined
this company, the single most persistent question that I get from
shareholders is what we discussed we’re going to do with the cash it
generates quarter after quarter, why do you maintain a very large amount
of cash.
And our position has been very clear, that first of all we’re very
fortunate that we generate cash quarter after quarter. The second thing is
our cash is basically to be used primarily for basically fueling growth
and any growth initiative. We’ve also said to the shareholders that any
cash that we do not require for fueling of growth in the future we will
basically use in some way, shape, or form to pass back on to the
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February 5, 2016
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shareholders, that the choice there is if a dividend is a one-time offering,
is it a share buyback.
And again, when we actually talk to different shareholders, they have
said very clearly that the share buyback or the stock buyback is the most
equitable way of basically using cash that you don’t think you will need
for future growth purposes.
In terms of the timing, the timing is driven by the fact that if you look at
the regulations in India, you can only do this once every 12 months, not
any faster than this. The last buyback we did was basically end of
January. We had just finished the 12-month interval, and therefore now
we are eligible to do a second buyback. So if you want the answer
behind the so called mystery of the timing of the buyback, it is nothing
to do with any other consideration other than the fact that 12 months
since the last buyback are over, now the board can entertain doing
another buyback.
Babulal: So you are going to bought almost 55 lakhs of shares. So get more hold
of the company, you might acquire 80 lakhs of that particular share. So
you are going to buy back like remaining 25-20 lakhs of shares in future
time, like in next one year?
Rajiv: No, this has nothing to do with share ownership or getting to a finite
number of shares. This has to do with the fact that if you’re going to
have positive earnings for shares, obviously the fewer shares that are
outstanding, the higher the EPS.
Babulal: Yeah, EPS will be like higher side from like just because we are just
reducing share, but not from like performance point of view, revenue
and like from profit point of view, because from past six quarters, profit
is just like one crores, two crores, six crores, seven crores, or minus
seven crores, minus 14 crores. So we are not adding anything into the
cash. We are just taking it out from cash by using buybacks or by
sending any of the credits what we are having. Say for example, now we
have sold like some 65 lakhs which they have got, like 70 crores in
2007. But again, that product has generated lots of revenue. If we count
that, then that will be negligible.
But again, here is like same, because we have a bad history of buybacks
from OnMobile perspective, because OnMobile it was like the best
innovation done by the Indians, right? If you see the global footprints
from 2002-2003 onwards.
Rajiv: I’ll hand it over to Praveen to answer your question. I’m not sure what
your question is.
Babulal: No, I’m in worried actually. Why I’m asking is like I’m worried about
the present…
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February 5, 2016
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Rajiv: Praveen will answer the question. Will you please let us finish? I’m
going to hand it over to Praveen; he’ll answer your question. But all I
want to say is you made a statement in there about the fact that we have
a bad history. I think would like to recheck that assumption. We actually
do generate cash and we continue to add cash to the company’s balance
sheet quarter after quarter. So please Praveen over to you.
Babulal: Yeah.
Praveen: So, as Rajiv said, look, we don’t want to comment on the bad history of
buyback or whatever. I think the last buyback has been… there is a
record of it being fruitful or yielded to the company’s EPS. You’ll have
to understand where we are coming from in terms of the future strategy,
because everything cannot be changed overnight. There is a financial
model that is going to be coming out in quarter one. There is going to be
a trend on the result that will show up in the next four quarters and
eventually we will have an EPS and investors will start tracking the
return on equity and return on capital and things like that. So it’ll all
unfold over a period of time. But then in terms of not being able to
generate cash, I don’t agree with it, because we have been saying that
effectively our EBITDA minus what the taxes what we generate, so we
have been generating cash quarter after quarter, you can look at the
historical numbers, add the capital payouts like the dividends and all
that, and it is very clearly evident. And I don’t think this needs more
explanation than what I had said.
Babulal: No, actually I do agree. That’s why I invested in this company from like
past five years. So I will be like holding on the shares for next four-five
more years. So I’m just worried about it and clear the answers. So I
think you have cleared answer of timing. So I’m happy with that. And
any future EPS targets you want to achieve for like five years down the
line?
Praveen: No, as Rajiv said, we will not be able to give any guidance at this point
in time.
Babulal: Okay. Thank you.
Praveen: Yeah, thank you.
Moderator: Thank you for your question. Next we have Jagdish from Florentry
Advisor. Your line is un-muted.
Jagdish: Yeah, hi. So first question, I just missed depreciation number which you
mentioned, from 148, if I’m not wrong. Are you expecting to come
down to 80 crores? What about 18 crores?
Praveen: No, no, 80. 80 crores is the depreciation that is going to go off.
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February 5, 2016
Page 14 of 17
Jagdish: Okay, alright. And the second thing is you mentioned on the tax as well.
So I want to understand what’s the tax perspective later on, when you
mentioned something about reduction in taxes as well?
Praveen: See, there is a baseline tax that we have to pay in all the geographies
today because there are a lot of subsidiaries of ours that make profit and
there is going to be a corporate tax, there is also tax implication of
money coming in to India and withholding taxes that some geographies
we are able to take credit of, some we are not able to take credit of. So
there’s a baseline tax. Now, because of a very high depreciation and a
very less PBT numbers, the profit before tax and the tax numbers does
not make any sense. But once the depreciation goes off, you will have a
decent kind of PBT number and there will be a meaningful ETR number
that we can look at, which is the effective taxes.
Jagdish: Okay. Alright. Another thing I’m looking at are receivables have moved
up in this particular quarter. So any specific reason of receivables
moving up significantly?
Praveen: Yes, this I covered in my opening note. Q3 typically being end of the
quarter is already holiday season and all that. Typically our collections
get pushed over to the January. Some of the catch up we have already
done in January, but this is as of that point in time, which is as of 31st
December. But I think by end of Quarter 4 we should be back on track.
Jagdish: Okay. And I wanted to get some sense if you could put across the new
product that is available, if I would have missed throughout the call any
mention that you have given in your opening remarks. So could you
please put some more light on the products?
Praveen: I don’t think at this point I can comment anything more than what Rajiv
had already spoken about. And as we said, closer to the launch date,
everything will unfold, including the parameters that we’ll be giving out.
Jagdish: Okay. And the question is does this new product replace our legacy
product over two-three years’ time?
Praveen: Yes, partly in FYTS, that is what it will be.
Jagdish: Okay, alright. Thank you. That’s it from my end.
Praveen: Yeah, thank you.
Moderator: Thank you for your question. Next we have Kamal from EP Advisors.
Your line is un-muted. There’s no response. Next we have Amar Morea
from India Nivesh. Your line is un-muted.
Amar: Yeah, thanks for the opportunity. Rajiv, my first question is what is the
revenue breakup of RBT v/s data and others and CVAS in this quarter?
Broad revenue break.
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February 5, 2016
Page 15 of 17
Praveen: Yeah, yeah. Around 50% of revenue comes from RBT. Around 30-35%
comes from CVAS, and the rest from the traditional models of
infotainment, etc.
Amar: So that is data and others?
Praveen: I mean we don’t bifurcate anything called data. It is the legacy
infotainment products that we have.
Amar: Okay. So 35% is CVAS, right, or VAS? VAS or CVAS?
Praveen: CVAS. That is CVAS.
Amar: Okay. So 35% is the converged VAS we are talking about, right?
Praveen: Yes.
Amar: So I wanted to understand like out of this three broad breakup, I believe
CVAS which is going to grow faster than the other two, is that the right
assumption given the current product mix? I’m not talking about any
new product.
Rajiv: Yeah, if you look at it purely from a legacy perspective. What has
happened is that RBTs have had a much longer history than CVAS.
Amar: Correct.
Rajiv: So in initial phase, RBT was a bigger contributor. But the last year-and-
a-half in particular, CVAS has seen some remarkable growth in terms of
the weight of growth at this moment. There’s no question, CVAs has a
higher rate of growth for OnMobile than RBT, to the point it has become
a fairly significant chunk of our business.
Amar: So now when we say that the new product, which is going to be
launched whenever it is, so what part of our revenue will be cannibalized
with the new product? Is that the CVAS part or the RBT part?
Rajiv: Now, look, I think it’s a very, very complicated answer. And that’s why
I’m not going to answer that question. And the reason is that to give you
a clear answer, you have to basically constraint the roll out into one
country, one geography and say here new product is a legacy product
and therefore here is the cannibalization, here is the cross impact. And
the second reason is it’s a single product that somehow replacing a
traditional RBT business either. I talked about the fact that it will be
multiple apps.
Amar: Correct.
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February 5, 2016
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Rajiv: And in fact there’s definitely cross play between all these apps. Second
part which makes it complicated is that we go through a period of time
where the certain geographies will have new products and certain
geographies we will not have the new products. And that’s going to be a
conscious decision.
Amar: Right.
Rajiv: and these new geographies will be running purely on a legacy model. So
I cannot give you a simple answer to your answer to say here is the
proportion, here is the percentage of impact between the new and the
old.
Amar: I mean just a broad understanding what is going to be cannibalized? Is
that the converged VAS or RBT? I believe data is going to die by its
own, right?
Rajiv: Simple answer to the question is there will be no cannibalization.
Amar: Okay. So meaning it is going to be completely the new line of business.
Okay. And what is our North America percentage of revenue today, just
if we have presence?
Praveen: Yeah, it is very small. It is going to be around 3-4%.
Amar: Okay. Thanks a lot. That’s all from my side.
Praveen: Harpreet, we will take one last question, please.
Moderator: Sure, sir. The last question of the day we have from Prakash,
independent investor. Your line is un-muted.
Prakash: Apologies, sir. I was to ask a question, but my question got asked by
somebody else. All my questions are answered. Thank you.
Praveen: Okay. Thank you, Prakash.
Moderator: Sir, can we take other questions?
Praveen: We will take one last question, Harpreet.
Moderator: Sure, sir. Next we have Jagdish from Florentry Advisor. Your line is
unmuted.
Jagdish: Sir, just to have an understanding, you just mentioned that there would
not be a cannibalization, the previous gentleman was asking. So wanted
to understand. And I got an answer that the new product will replace
partly the existing or the legacy product over two-three years. So could
you please clarify on that?
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February 5, 2016
Page 17 of 17
Rajiv: With the clarity, again, these are danger set of answering these questions
is that it’s going to be a fairly complex situation. Let me give you a few
examples of that. Even if the new product has similar functionality but
basically targeting a market segment historically not being addressed by
us, you can on one hand say it is very similar in terms of the offering and
yet you can also make the statement that it does not cannibalize existing
market. So that’s one way of answering the question.
The second way of answering the question is to say that the new
products will be offered in geographies where we historically had no
legacy revenues. And that also does not mean that it’s fundamentally
that much different in terms of its positioning and functionality. But the
fact that we had no legacy business, there’s no cannibalization. So there
is no simple answer to this one. Overall, on a global note, I want to
basically mention that there will be no cannibalization of our legacy
revenues.
Jagdish: Okay. Alright, thank you.
Moderator: I would now like to hand the floor back to the speaker for the final
remarks. Thank you and over to you, sir.
Rajiv: Well, thank you, very much, Harpreet and ladies and gentlemen, thank
you for joining us for this call. I do understand that you have a lot of
questions about our future business. Once again, I just want to basically
reinforce the fact that we are in fact working feverishly towards making
this new chapter happen. We are getting closer and closer every day.
And certainly very confident we’ll come back in a short time and give
you a glimpse of our future which has made our team extremely
enthusiastic. So thank you once again. And I wish you a very good
evening.
Moderator: Thank you so much, sir. Thank you, participants for joining the call. Let
us conclude our conference call for today. You may all disconnect your
lines now. Thank you and have a pleasant evening.